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Communitization Agreements in the 21St Century

[12-2] As used herein, “communitization” is a term applied to the joint development of federal and/or Indian oil and gas leases; however, the reader should be mindful that many states also employ the term when state leases are pooled with other leases for the exploration and development of a single drilling or spacing unit. It is quite common to see the terms unitization, pooling and communitization used interchangeably,4 resulting in confusion and precipitates miscommunication between the parties.5

It is also common to see the terms “proration unit,” “drilling unit,” and “spacing unit” used synonymously, but there are distinct differences in the definition of these terms as used in various jurisdictions.6 Williams and Meyers defines proration unit as follows:

(1) The area in a pool that can be efficiently and economically drained by one well, as determined by the Commission....

(2) The acreage assigned to an individual well for the purpose of allocating allowable production thereto.7

A spacing unit is defined as “the area allocated to a well under a well spacing order”;8 and a drilling unit is defined as “the area prescribed by applicable well spacing regulations for the granting of a permit by the regulatory agency for the drilling of a well; the area assigned in the granting of a well permit.”9 For purposes of this paper, the terms prora